Thinking about taking the plunge into the Sonoma County Real Estate Market? Summer is right around the corner and now couldn’t be a better time to get preapproved with a mortgage lender to begin the home search. What you’ll experience as a home buyer in today’s market is a lower inventory of homes for sale coupled with increased competition from other home buyers. This means when opportunity presents itself, you want to be in the best position possible to take advantage of that opportunity before someone else does.
You want to start by getting idea of what a mortgage payment might look like for you and your family. Just recently, CNN Money came out with a research article revealing mortgage payments are now the lowest in years creating more affordable home buying opportunities across many markets.
Start by getting a mortgage rate quote or doing an online mortgage prequalification. Pick a mortgage lender not only competitive in rate and price, but one that’s actually responsive and can get your loan closed within 30 days or less. This will ultimately become very critical in your real estate purchase negotiation because you’ll be able to write an offer to close in 30 days or less, a component appealing to home sellers.
Ok, your preapproved to buy a house, now what?
Our local Sonoma County market is comprised of three different types of real estate sales. They are foreclosures/bank owned property also known as REO’s (bank term for real estate owned), short sales and equity transactions. As a preapproved home buyer, here’s what to expect in each type of situation.
Foreclosure Property-these properties are owned by big banks and sometimes require you to get a second preapproval with a loan officer of that seller. For example a property is owned by Chase Bank, Chase Bank as the seller, will require you to get a second preapproval with a Chase Bank loan officer. Unfortunately, it’s a way for Chase Bank to double end the transaction and control the buyer. You are under no obligation to work with them for the mortgage loan. You’re still free to choose who you would like to work with for financing.
Advantages of of buying a bank owned property:
- You can usually negotiate a fantastic deal on a house
- Seller credits for closing costs can also easily be negotiated
- Transactions typically take 30 to 35 days to close escrow
- You usually have to work with the preferred title company of the bank
Disadvantages of buying a bank owned property:
- strong competition from other buyers and cash investors
- Occasionally, listing agent intentionally lists the property below market to induce multiple offers creating a highest and best offer situation, where the bank gives everyone who made an offer, an opportunity to put in a second offer as their highest and best. The bank then goes with the highest and best offer.
- second mortgage preapprovals usually require another credit check
Short Sale-is an alternative to buying a bank owned property. A short sale has to do with the amount of debt tied to the real estate that is being “shorted” settled for less than the full balance originally lent. A short sale is anything but short, in terms of time frames. For example you’d like to purchase a house for $200,000 and there’s $350,000 in mortgage liens attached to the property. Simple math shows the bank is taking a loss in the amount $150,000. In actuality, the bank is taking a loss for more than $150,000 because the bank still has to pay real estate agent commissions, transfer taxes and/or unpaid property taxes.
Advantages of buying a short sale property
- take longer, as a result less competition from other buyers
- more flexibility in determining loan program
- home buyer can usually select the title company
- seller credits for closing costs can be negotiated
- Property can sometimes be in better condition especially if the seller still occupies the property as their primary residence during the short sale process. This is because they’re more likely to keep it in-house in better condition after living there that they’ve abandoned such as in an REO transaction.
Disadvantages of buying a short sale property
- two forms of seller acceptance: the seller of the property has to accept your offer and the bank agreeing to take the “shortage” also has to agree to accept your offer and terms
- Short sales can take anywhere between three months to nine months, although lately there’s been strong government pressure on lenders to make these transactions smoother and easier for all the parties involved. We’ve seen short sale transactions go from start to finish in as little as three months.
- Like REO’s, bank short sale approval might not include credits for closing costs,attaining a seller credit for closing costs is slightly more difficult on a short sale transaction.
Equity Transactions- these transactions include people who have equity in their homes looking to sell as well as home builders. Individual home sellers, we call these equity transactions because these types of sellers are far and few in today’s market. Builder sales are a little different because while they have equity, they mimic the process of buying an REO property.
Advantages of buying an equity transaction
- Because you’re dealing with a home seller, the direct decision maker, everything is much more negotiable including price, credits for closing costs, and terms.
- ability to customize the home to specific buyer standards if buying direct from a builder
- builder transactions have less competition than properties heavily marketed on the MLS such as REO’s
- decisions can be made literally within hours, not days
Disadvantages of buying equity transaction
- unrealistic home sellers looking for their 2005 purchase price
- non seller willingness to do get small repairs needed for government home buyer financing
- Requirement to work with the preferred mortgage lender a home builder. They offer promotions to work with the mortgage lender and having the whole transaction “under one roof.” What they really do is build the cost of the price of the house and/or upgrades of the house into the costs of a mortgage by inflating the interest rate are charging additional fees to you as the home buyer. This means you’re likely not get to select who you want to work with for mortgage loan financing. This however, can be negotiated up front.
By getting preapproved to buy a house now, you are in the driver’s seat.
Getting preapproved to buy a house is really the first step in giving you the opportunities in the form of bank owned property, short sales and equity transactions. Home prices and interest rates are presently hand-in-hand creating an affordability sandwich allowing people who thought they could not purchase a home, to get into the market. The average home buyer takes 6 to 8 months to shop for property from the time they are originally mortgage preapproved. So Get Preapproved To Buy A House: Start House Hunting!